Banking
From FVA to KVA: including cost of capital in derivatives pricing
Youssef Elouerkhaoui presents a general derivatives pricing framework including cost of capital
The funding invariance principle
Youssef Elouerkhaoui shows how the choice of discounting rate is irrelevant for pricing
Non-parametric local volatility formula for interest rate swaptions
Gatarek, Jabłecki and Qu introduce a Dupire-like formula for swaptions
Expected shortfall is jointly elicitable with value-at-risk: implications for backtesting
Fissler, Ziegel and Gneiting investigate the role of elicitability in backtesting problems and show how comparative backtests can be implemented for expected shortfall
Diversification benefit of operational risk
Torresetti and Le Pera explore the relevance of the diversification benefit from a theoretical and practical viewpoint
Correlation skew via stochastic correlation and jumps
Valer Zetocha introduces a correlation model based on the Jacobi process with jumps
CVA with Greeks and AAD
Reghai, Kettani and Messaoud present new technique to calculate CVA using adjoints
Jumping with default: wrong-way risk modelling for CVA
Fabio Mercurio and Minqiang Li investigate CVAs in the presence of wrong-way risk
FVA for general instruments
Alexander Antonov, Bianchetti and Mihai develop a universal and efficient approach to numerical FVA calculation
A non-linear PDE for XVA by forward Monte Carlo
Vladimir Piterbarg considers a non-linear partial differentiation equation that appears in a number of XVA-related contexts, including a one-way credit-support annex, credit value adjustment with risky closeout, option pricing with differential borrowing…
Collateral option valuation made easy
Vladimir Sankovich and Qinghua Zhu develop a method to value cheapest-to-deliver option embedded in CSAs
Wrong-way risk done right
Jacky Lee and Luca Capriotti present an arbitrage-free valuation method for counterparty exposure of credit derivates portfolios.
The free boundary SABR: natural extension to negative rates
Antonov, Konikov and Spector adapt the popular SABR model to a negative rates environment
Efficient XVA management: pricing, hedging and allocation
Kenyon and Green show how certain technical elements simplify XVA management
CVA and FVA with liability-side pricing
Wujiang Lou calculates CVA and FVA abiding by the law of one price
American options: time-critical pricing
Time constraints can be binding for ‘heavy’ Monte Carlo calculations of risk analytics – value-at-risk, potential future exposure, credit valuation adjustment – in intraday risk monitoring, so fast approximations are sometimes preferred. Vladislav…
Greeks with continuous adjoints: fast to code, fast to run
Marzio Sala and Vincent Thiery show the derivation of the continuous adjoint problem for PDEs
Scaling operational loss data and its systemic risk implications
A scaling methodology to include external data in operational risk calculation is introduced
MVA by replication and regression
Burgard and Kjaer method is extended to include margin valuation adjustment
Quantized calibration in local volatility
Quantization is applied to price vanilla and barrier options
Funding in option pricing: the Black-Scholes framework extended
Wujiang Lou shows the impact of funding costs on option valuation
Two measures for the price of one
Harvey Stein combines risk-neutral and real-world measures into risk methodology
Warehousing credit risk: pricing, capital and tax
Kenyon and Green model the effects to pricing of credit warehousing, capital and tax
FVA accounting, risk management and collateral trading
Albanese, Andersen and Iabichino present a method for accounting and risk managing FVAs